A recent report by a blockchain analytics company showed that criminals have started to utilize privacy wallets to hide their illicit bitcoin transactions. The usage of such wallets has skyrocketed since 2019, and now over 13% of all crime proceeds go through them.
The UK-based analytics company Elliptic highlighted in its latest report the increase in the number of money laundering cases using bitcoin. However, it pointed out a significant change in the primary method of operations.
The paper outlined that the most preferred tool for money laundering used to be the infamous bitcoin mixers. Put simply, such mixers serve as coin randomizers making sure that the sent and received bitcoins are different. Ultimately, they make it harder to trace the transaction back to the initial wallet.
However, as they have issues as well, including the possibility of law enforcement agencies portraying as mixer operators or regulators successfully cracking down on the usage, bad actors have started to turn to another option – privacy wallets.
Meaning, bitcoin wallets (either hot or cold) that belong to certain individuals, rather than an exchange. When combined with the Tor anonymity network, such wallets could transmit CoinJoin transactions.
CoinJoin, on the other hand, is the process of creating multi-party BTC transactions where the original source is also mixed and difficult to trace. The end result of these services has become largely popular among money launderers since last year. As the graph below illustrates, privacy wallet transactions linked to bad actors account for 13% and have surpassed mixers.
2020 has seen several significant security breaches somehow related to the cryptocurrency industry. Elliptic’s report indicated that privacy wallets had been employed with two of the most famous ones to launder the taken funds.
Namely, those are the Twitter hack that saw dozens of high-profile accounts compromised to promote a fake bitcoin giveaway and the attack on KuCoin that stole $280 million in various digital currencies.
However, the report didn’t specify what portion of the stolen funds has been successfully laundered through the privacy wallets. A month after the hack on the cryptocurrency exchange, KuCoin’s CEO said that they had recovered $235 million – or 84% of all the funds.
